Gray, which owns ABC affiliate KSFY Sioux Falls, S.D., and has a deal to buy NBC affiliate KDLT, tells the FCC that the economic advantages to co-ownership will let it invest more into the programming and facilities of both stations, including state-of-the-art technology, newsgathering and improved talent.
Last fall, the FCC affirmed its rule banning broadcasters from owning two top-four-rated stations — typically, two Big Four network affiliates in the same market.
But it said that it would consider exceptions to the rule on a case-by-case basis.
The FCC now has its first case before it, and it will be closely followed since how it rules will inform arguments in (and may set criteria for) the cases that follow.
The case comes from Gray Television, which owns ABC affiliate KSFY Sioux Falls, S.D., and has a deal to buy NBC affiliate KDLT there from Red River Broadcast for $32 million. KSFY, is the sprawling market’s second-ranked station; KDLT, the third ranked.
“The proposed combination would permit Gray to invest more into the programming and facilities of both KDLT-TV and KSFY-TV — a result that will make KDLT-TV a stronger competitor in the market and allow KDLT-TV to better serve its viewers in the market,” Gray argues in its waiver application.
“Moreover, permitting this combination will permit legitimate competition in the Sioux Falls TV broadcasting market to occur for the first time.
“Until the proposed transaction, the Sioux Falls market has been characterized by massive concentration of market share in a single station — Nexstar’s KELO-TV [CBS] — and a fragmented market of undersized competitors.
“Allowing the proposed acquisition will create economies of scale that will permit Gray to compete with KELO-TV with a strength no station in the market can muster today.”
In deciding whether the proposed public interest benefits would outweigh the reduced competition of a proposed combo, the FCC said it would consider ratings and revenue share of the stations, market characteristics like strong stations outside the top four and the “likely effects” of the stations’ programming om meeting the needs of the population.
Gray stuck to that outline with in its proposal.
It says that KELO is the “undisputed ratings and market share leader … by a very wide margin,” topping the ratings chart in every sweeps period for the past three years.
And the Nexstar station’s audience share exceeds the combined share of KSFY and KDLT, it adds.
The audience share is reflected in the revenue share. Citing BIA Advisory Services, it says that over the past five years the combined share of KSFY and KDLT never exceeded 35.7%, while KELO’s share never fell below 56.6%.
The proposal then turns to the market characteristics of Sioux Falls (DMA 110).
The market has fewer TV homes than Prince George’s County, Md., a Washington suburb, it says, yet it stretches across 59 counties of South Dakota, Minnesota, Iowa and Nebraska — 57,000 square miles.
“Serving an expansive, thinly populated DMA like Sioux Falls creates special challenges and additional costs that can be ameliorated by joint ownership and coordinated operations,” it says.
Each station has to operate TV satellites and low-power stations to fill in where the main signal doesn’t reach. “Operating these networks of stations is the only way for Sioux Falls stations to reach the viewers in less densely populated areas. But operation of these wide-area transmission systems carries a high cost in terms of construction, maintenance and operating costs.”
The combination will also “make it economically feasible for Gray to implement the types of upgrades and quality improvements to KDLT-TV that it has made for its own stations and stations it has previously acquired, including state-of-the-art technology, newsgathering and improved talent.
“It is a standard economic result, that by spreading these investments over a larger audience and base of advertising customers, the investments will be more profitable.
“In turn, incremental investments incentivized by the lower cost and higher return are expected to lead to increased content and advertising slots. That result is predicted by economic theory and borne out by Gray’s experience.”
And the combination will pay dividends to viewers and local advertising in the form of improved news, it says.
“Gray expects to be able to pool its news assets in Sioux Falls with those of Gray’s stations in Rapid City to cover regional developments in more depth and at lower costs than either it or Red River could today.
“Gray also operates a Washington, D.C., news bureau providing an important outlet for lawmakers in Washington to reach their constituents back home in Gray’s markets.
“Gray will look for ways to allow its seasoned reporters in its Washington news bureau to bring content from Washington to KDLT-TV in a way that is not possible under the station’s current ownership.”
The proposal says Gray is considering other upgrades in service should the FCC grant its application, including:
- A news bureau in the state capital of Pierre
- A subchannel of KDLT’s satellite station with ABC programming
- A subchannel of KSFY’s satellite station with NBC programming
- A low-power station to restore KSFY’s coverage to Aberdeen, S.D.
- State-of-the-art weather radar
- More coverage of local sports and events
“In sum, because Gray’s common ownership of KSFY-TV and KDLT-TV would serve the public interest, convenience, and necessity without a countervailing harm to the public, the commission should permit common ownership of the station.”